With EPS Growth And More, Torex Gold Resources (TSE:TXG) Makes An Interesting Case

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Torex Gold Resources (TSE:TXG). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

Check out our latest analysis for Torex Gold Resources

How Quickly Is Torex Gold Resources Increasing Earnings Per Share?

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. That means EPS growth is considered a real positive by most successful long-term investors. To the delight of shareholders, Torex Gold Resources has achieved impressive annual EPS growth of 38%, compound, over the last three years. That sort of growth rarely ever lasts long, but it is well worth paying attention to when it happens.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. EBIT margins have declined for Torex Gold Resources, but revenue stability should provide some reassurance to shareholders. While some people may not be too phased, this could be a sticking point for some investors.

You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for Torex Gold Resources' future EPS 100% free.

Are Torex Gold Resources Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

We note that Torex Gold Resources insiders spent US$196k on stock, over the last year; in contrast, we didn't see any selling. This is a good look for the company as it paints an optimistic picture for the future. It is also worth noting that it was Independent Director Rosalie Moore who made the biggest single purchase, worth CA$43k, paying CA$10.77 per share.

Is Torex Gold Resources Worth Keeping An Eye On?

Torex Gold Resources' earnings per share have been soaring, with growth rates sky high. Most growth-seeking investors will find it hard to ignore that sort of explosive EPS growth. And indeed, it could be a sign that the business is at an inflection point. If that's the case, you may regret neglecting to put Torex Gold Resources on your watchlist. However, before you get too excited we've discovered 1 warning sign for Torex Gold Resources that you should be aware of.

Keen growth investors love to see insider buying. Thankfully, Torex Gold Resources isn't the only one. You can see a a free list of them here.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.